PNJ: Hope for the best, prepare for the worst

Event

We attended PNJ’s AGM on June 10. The company proposed modest profit guidance due to the COVID-19 impact and high gold price environment.

Key highlights

Weak 2020 profit guidance. The company targets 2020 profit after tax of VND 832.3bn, down 30% YoY, mainly attributable to the expected slowdown in sales to VND 14,485 bn, -15% YOY. Management stated that the COVID-19 impact is still unknown and the high gold price environment could undermine jewelry demand.

But sales recovered in May. 4M20 revenue fell 4% YoY to VND5,502bn. This was driven by the COVID-19-related shutdown in April, which resulted in 47% YoY revenue decline for the month. However, sales recovered in May, expanding by +20% YoY.

Expanding the distribution network and manufacturing capacity. PNJ plans to open 31 new stores in 2020, mostly in tier 2 and 3 cities, which would result in 380 total stores (+8.9% YoY). Management also plans 1) to renovate its legacy production capacity to manufacture previously imported products and 2) to build a new facility in Long An province to address the environmental issues from its plating process, with 2020 capex guided at VND 150 bn (-37% YoY). PNJ also plans to continue investing in its digital transformation to improve its retail management.

2020E dividend guidance. PNJ targets a 2020 dividend of 18% of par value. Assuming this is paid in cash, the 2020E yield would be 2.8%.

ESOP for 2020. PNJ plans to issue ESOPs of 0.85% of outstanding shares if management fulfills 115% of its profit guidance, and each 1ppt that earnings exceed that level will add an additional 0.06% in new shares. The ESOP is subject to a 36-month transfer limit.

Accumulating gold bars to ensure liquidity. Given the unpredictable impact of COVID-19, the company plans to increase its gold bar inventory in 2020 as means of ensuring sufficient liquidity.

Our view

We transfer coverage of PNJ to Binh Truong with publication of this note, and our investment thesis is currently under review. Overall, PNJ remains highly profitable with 28.7% ROE in 2019 underpinned by net margin of 7.0% and net debt/equity of 55.1% as at Dec 2019 declining sharply to 42.4% as at 1Q20

For the complete report, please access here: 20200610 PNJ AGM

Analyst: Binh Truong, binh.truong@yuanta.com.vn